Market access and regional dispersion of human capital accumulation in Turkey

• Date: 01 August 2020
• Author: Fırat Bilgel,Burhan Can Karahasan
• Published date: 01 August 2020
• DOI: http://doi.org/10.1111/rode.12676

Rev Dev Econ. 2020;24:1073–1101. wileyonlinelibrary.com/journal/rode

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© 2020 John Wiley & Sons Ltd

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INTRODUCTION

Technological advances, productivity improvements and resource allocation efficiency have been cen-

tral to economic theory (Lucas, 1988; Romer, 1994; Solow, 1956). Theoretical developments give

momentum to applied work in understanding the mechanisms of exogenous and endogenous growth

models. The majority of these empirical studies investigate the reasons for and sources of between-

and within-country differences (Barro & Sala-i Martin, 1995; Howitt, 2000; Sala-i-Martin, 1994).

However, the distribution of the factors that explain economic growth differences between and within

countries is also a vital research area for development economics. Among various dimensions, human

Received: 10 May 2019

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Revised: 23 March 2019

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Accepted: 22 April 2020

DOI: 10.1111/rode.12676

REGULAR ARTICLE

Market access and regional dispersion of human

capital accumulation in Turkey

Burhan CanKarahasan1

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FıratBilgel2,3

1Faculty of Economics and Administrative

Sciences, Department of Economics and

Finance, Piri Reis University, Istanbul,

Turkey

2Initiative for Regulation and Applied

Economic Analysis, Department of

Agricultural Economics and Economics,

Montana State University, Bozeman, MT,

USA

3Department of Economics, MEF

University, Istanbul, Turkey

Correspondence

Burhan Can Karahasan, Faculty of

Economics and Administrative Sciences,

Department of Economics and Finance,

Piri Reis University 34940, Tuzla, Istanbul,

Tur key.

Email: bckarahasan@pirireis.edu.tr

Funding information

Economic Research Forum (ERF),

Grant/Award Number: 2017-157

Abstract

Building on early advances in development economics, the

theoretical construct of new economic geography asserts

that geography plays a crucial role in educational human

capital accumulation. Based on this expectation, this study

investigates the impact of market access on provincial

human capital accumulation in Turkey. Results indicate that

market access matters for understanding why some regions

lag behind others in terms of average years of schooling.

Our results are robust to the inclusion of spatial mecha-

nisms, different specifications of the spatial weight matrix,

endogeneity and alternative measurements of market access

and to a host of other factors that affect regional human

capital accumulation.

KEYWORDS

human capital, market access, Turkey

JEL CLASSIFICATION

R11; R12

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KARAHASAN ANd BILGEL

capital development has been central to growth and development economics (Benhabib & Spiegel,

1994). Specifically, educational human capital accumulation facilitates various lines of economic

growth such as earnings and productivity enhancements, social and economy-wide developments, and

division and coordination of labor (Becker, 1964).

Educational human capital accumulation is a crucial element for economic prosperity. Therefore,

the reasons behind its distribution between and within countries become a vital line of research for

development economics. One common way of approaching differences based on human capital stems

from incentives, returns of education and the positive effect of educational policies (Psacharopoulos,

1988). A growing body of work questions the endogenous link between human capital accumulation

and economic development by emphasizing the importance of geographical linkages and market-based

incentives in order to stimulate human capital development. These recent discussions originate from

the role of agglomeration economies in understanding differences in the level of economic activity

(Krugman, 1991). Indeed, Gallup, Sachs, and Mellinger (1999) and Henderson, Shalizi, and Venables

(2001) suggest that geography is important not only because increasing returns matter but also be-

cause many economic and social dimensions of inequalities have a geographic dimension. While neo-

classical theories consider the importance accorded to geography by specifying first nature advantage,

the new economic geography (NEG) literature discusses the role of agglomeration economies in un-

derstanding the local differences in the level of economic activity (Krugman, 1991). Developments

in NEG reached a milestone with the use of market accessibility concept for explaining per capita

income disparities between countries (Redding & Venables, 2004a, 2004b). Note that the NEG frame-

work initially concentrated on economic and monetary inequalities. Increasing returns, existence of

externalities and the spillover of knowledge are essential elements, used by the NEG approach to

explain geographical differences in the level of economic activity. The success of this framework in

explaining ongoing regional disparities encouraged further studies to understand the impact of geog-

raphy on the sources of economic growth inequalities.

The formulation of NEG originates from agglomeration economies and possible externalities of

market accessibility. While these domains influence economic well-being, different channels can be

effective in order to understand the relationship between the determinants of economic growth and

agglomeration economies. Revisiting productivity and technology differences, the NEG literature ex-

plains the pattern of regional integration and factor accumulation by using the traditional two-sector

NEG model. Coe and Helpman (1995), Coe, Helpman, and Hoffmaister (1995), and Keller (2000)

discuss the negative impact of distance on technological spillovers, but Redding and Schott (2003)

discuss the endogenous evolution of production factors (i.e., human capital) within an augmented

NEG model.

While distance is a negative factor for the integration and spillover of economic activity, other

dimensions such as trade, income, and economic potential are mostly neglected. The NEG framework

enables the embedding of different economic indicators into an accessibility measure. In this new

formulation, distance acts as a compound factor (i.e., iceberg transportation costs) that influences the

impact of different economic variables. This market accessibility and potential (henceforth referred to

as market access) forms the backbone of agglomeration economies and externalities within the NEG

models. Specifically, two strands of literature use market access. While some studies directly focus on

the impact of market access on the level of economic activity (Hanson, 2005; Head & Mayer, 2006),

another line of research examines the relationship between market access and the endogenous accu-

mulation of production factors (Redding & Schott, 2003). The former specification is interested in the

dispersion of wages, productivity differences and economic activity variation, whereas the latter tends

to understand how production factors (i.e., human capital) vary based on the distribution of market

accessibility.